New President, New Opportunities for Mexico

On the first of December, the inauguration of Mexico’s 57th president was met with varying degrees of excitement. Succeeding Felipe Calderon, Enrique Peña Nieto now represents the Institutional Revolutionary Party (PRI) in the executive office, marking a return of the political party that had been in power for 71 year in Mexico before the 2000 presidential elections. Peña’s presidency, however, may be much more representative of a shift in economic values than party priorities. With the ramifications of the 2007-2008 financial crisis still hard felt in much of the Mexican peninsula and conditions of other developing states changing rapidly abroad, Peña faces an important opportunity in enacting effective economic reform to capitalise on the nation’s production abilities and to improve domestic infrastructure. While he declared in this inaugural address: “IT IS time to get Mexico moving,” the challenges imposed by state restrictions, trade barriers, institutionalised crime, and pejorative social dialogues may make Peña incapable of lifting Mexico to the ranks of Brazil and China without considerable cooperation from adversaries at home and across borders.

Image courtesy of Presidencia de la Republica, © 2012, some rights reserved.
Image courtesy of Presidencia de la Republica, © 2012, some rights reserved.

While Mexico’s involvement in the North American Free Trade agreement has arguably stifled many of the nation’s small-scale farming economies, the opportunities it has created for Mexico to capitalise on its material production capabilities represents a large area for economic expansion, increasing the state’s importance as an exporter to its Northern neighbours. While China maintains its position as the primary source of American imports, the average wage rate in Chinese factories has quintupled in the last decade, rising form $0.32 to $1.63 per hour, where as the corresponding Mexican hourly rate has only risen from $1.51 to $2.10. As the price of Chinese oil has more than trebled, and the transportation costs across the Mexican border are significantly less and far more expedient, many manufacturers, especially within the technology industry, have begun to shift their operations closer to the American market. Mexico is already the world’s predominant exporter of BlackBerrys, refrigerators, freezers, and flat-screen televisions, and, as automotive and aerospace technology production continues to increase, is it expected that the United States will import more from Mexico than from any other country by 2018 if the present trends hold steady.

While this image of Mexico as an increasingly dominant industrial power may be logistically feasible under a set of ideal circumstances, Peña faces more than his fair share of obstacles in facilitating the production expansion necessary to catalyse economic growth and social improvements for the reduction of poverty.

The Mexican oil production industry, which provides roughly a third of government revenue and is considered among the top ten in the world, may be the key to accruing the funds for Mexican expansion. Production is managed by Pemex, the state-run monopoly which is widely criticised for its inefficiencies in production as output has gradually slumped since 2004. The state’s oil sector constitution also disallows private investments, which would enable greater growth and profits through investments in technology and human capital both for investors and for the state, in order to protect domestic interests from the exploitation of foreign investors. Peña has declared oil sector and energy production reform to be a priority of his administration, though the Pact for Mexico, signed within the first days of his presidency in order to outline goals and measures for energy production reform, has left much to be accounted for. While acknowledging that reforms will be essential to the future of the industry, the Pact purports to “transform Pemex into a productive, public company,” though private investors are nevertheless barred from the industry, as Peña repeatedly stresses that Pemex “will remain a property of the state.” The Mexican oil industry may thus remain a relatively untapped resource if the state does not take drastic action to facilitate the improvements necessary to generate sufficient revenue to fund further economic expansionary reforms.

While economists argue that Mexico must grow as an exporter in order to progress as a developing state and enjoy more stable economic conditions at home, the terms of assuming such a position may not be quite so beneficial and benign. Peña has already faced much opposition from youth movements such as “YoSoy141,” and dozens of demonstrations in Mexico City have already elucidated the sentiments that many Mexican citizens share against Peña’s plans for economic reform and for loosening restrictions on oil investment. Human rights activists insist that reforms in immigration policy and the restrictions imposed by NAFTA must be addressed before Mexico can truly engage with the United States as a trading partner, as, for example, Mexican truck drivers must stop and transfer their products onto American vehicles upon reaching the border, as, due to strict immigration laws, they are not allowed into the US. Thus, before the United States is able to enact sufficient immigration reform, the inefficiencies in the importing process and the pejorative social dialogue within the US may hamper an effective trade relationship. As the Presidents of both the United States and Mexico enter new terms, however, such progress may be more feasibly than ever before.

Further, the issues of wide scale poverty and drug-related violence may continue to necessitate the state’s continuous attention. While economic reform and expansion may ultimately be beneficial in eroding the foundations of these problems, it may be impossible for Peña to focus thoroughly enough on economic reform as these pandemic issues persist. These issues aside, Mexico undoubtedly faces a wealth of economic opportunities in its immediate future, as a series of fortunate circumstances lay before Enrique Peña Nieto at the start of his presidency. Only time will tell if Peña’s leadership will be sufficient in capitalising upon this promising state of affairs, and if we may be entering the decade of the rise of Mexican power.

3 Replies to “New President, New Opportunities for Mexico”

  1. I have a few problems with this article.

    The first is the possibility of reducing poverty and growing domestic industry through the methods that this author suggests. Undercutting China’s manufacturing power would mean depressing wages in Mexico and limiting benefits so as to entice foreign companies to invest; this doesn’t seem to be in the interest of the people of Mexico. As for the industries mentioned, BlackBerry is Canadian. This is the perfect example of a foreign company using Mexico as a manufacturing plant while taking most of the profits overseas and creating low-paying jobs. Expanding this model would mean transforming Mexico’s economy into one that simply services high growth and profit maximization in foreign firms. This is counterproductive to real development, as it doesn’t encourage domestic industry and creates an atmosphere of competitive disenfranchisement of workers.

    As for privatizing Mexico’s oil, I can’t imagine how this would lead to anything but a short-term payoff while sacrificing long-term benefit. Countries such as Venezuela, Russia and especially Norway illustrate the benefits of having such a reliable source of profit available to the state. The U.S. has sold off most of its oil production to private firms and has lost out on simply unbelievable amounts of future income, which the government could certainly use right now. I don’t see how sacrificing guaranteed government revenue, no matter how inefficient the industry may currently be, contributes to greater development.

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